How to Achieve Emission Targets with Less Impacts on Economy: Implications from Taiwan Dr. Yi-Hua Wu, Industrial Technology Research Institute, Taiwan

1. May 24, 2022
How to Achieve Emission Targets
with Less Impacts on Economy:
Implications from Taiwan
Yi-Hua Wu and Tzu-Yar Liu
Green Energy and Environment Research Laboratories,
Industrial Technology Research Institute

2. 2
◆ Emission target in 2035: From BAU of 375 to 194 million tonnes
◆ Taiwanese intends to launch multiple policies to achieve the target
◆ Taiwan will review its emission target every 5 year
Background
BAU
Emission Target
2021 2025 2030 2035
The Emission Target in Taiwan
Million Tonne

3. 3
Contributions
◆ Numerous papers study how to use carbon pricing to achieve the emission
target
◆ This paper: We identify economic effects of multiple policies/scenarios
✓ Positive Effects: Renewable investment, investments in gas-fired power
plants and energy efficiency improvements
✓ Negative Effects: higher electricity price and carbon tax
Contributions and Policy Use
Future Policy Implications
◆ The analysis might be used for the negotiation between Ministry of
Economic Affairs (economic development) and Environmental Protection
Agency (environmental regulation) in Taiwan

4. ◆ 2022-2035 average annul GDP growth
0.9%
◆ Carbon price in 2035 is 436 USD/Tonne
4
➢ Renewable and natural gas investment
(average annual GDP +0.03%)
➢ Electricity price(average annual GDP -0.29%)
➢ Induced energy investment (average annual
GDP +0.04%)
Comparison with carbon tax only
(2)Carbon pricing only
✓ Carbon tax
(1) BAU 2022-2035 annul GDP growth 2.30%
Tax base
2022-2024: High emission industries only
2025-2035: All industries and households
◆ 2022-2035 average annual GDP growth 2.02%
◆ Carbon price in 2035 is 33 USD/Tonne
(3)Energy supply policy and carbon tax
✓ Energy supply policy
➢ Average GDP growth -0.06%

5. 5
Soft-link with TIMES model
Model Soft-link
Official Target for
Energy Mix
Taiwan TIMES team
Government information
Power generation costs
Marginal mitigation cost curves
➢ Energy efficiency investment
➢ Energy efficiency improvement
➢ Adjustment of electricity price
➢ Investments on renewables and
gas-fire power
CGE model
TIMES links with a CGE model

6. 6
◆ The official goal is to expand the renewables in the future
◆ We expect higher power generation costs regarding more renewables
BAU Policy Scenario
➢ 2025
✓ Fired power(95.3%)
✓ Renewables(3.8%)
✓ Nuclear power(0.9%)
➢ 2035發電占比
✓ Fired power(96.5%)
✓ Renewables(3.5%)
✓ Nuclear power(0 %)
➢ 2025
✓ Fired power(78.8%)
✓ Renewables(20%)
✓ Nuclear power(1.0 %)
➢ 2035
✓Fired power(69.7%)
✓Renewables(30.3%)
✓Nuclear power(0 %)
Scenario settings
Power supply mix in Taiwan

7. 7
Input for CGE model
Power generation costs
Renewable Investments
Induced investments in
energy efficiency
Scenario settings
Input for CGE model
Investment on gas-fired power

8. 8
Industrial Sector Service Sector
Residential Sector
2022 2025 2030 2035
2022 2025 2030 2035
2022 2025 2030 2035
◆ Change of energy demand in face of
higher electricity price
➢ Use MACC to identify which technology is
going to be applied in face of higher
electricity price
➢ Calculate the investment costs and energy
demand reduction rate relative to BAU
➢ These two data are input for CGE
Scenario settings
Input for CGE model
Electricity
Electricity
Electricity
Gas
Oil
Coa
l

9. 9
Carbon Tax Design
◆ Carbon tax rate increases in 5-year interval
➢ Taiwan will review its emission reduction achievement every 5 year.
◆ We set up an ad-hoc tax rate, increasing it up to 35 USD/tonne in 2035
➢ Environmental Protection Administration (EPA) in Taiwan proposed 3 USD/tonne (similar
to the case in Singapore)
➢ The punishment for those which fail to obey the abatement requirement will be fined up
to 50 USD/tonne
Policy Action and Scenarios

10. 10
1. Impacts on CO2 Emissions
◆ The target is not achievable without a carbon tax
2021 2025 2030 2035
Energy Supply Policy
+Trigger Investment in Energy Efficiency
Emission Target
Energy Supply Policy
+Trigger Investment in Energy
Efficiency+Carbon Tax
Emission Pathway
Industrial sector All sectors
Million Tonne
Simulation Results

11. 11
Energy Efficiency Improvements
Renewable and Natural Gas
Investments
Total Effects
Carbon Tax
Higher Electricity Price
2. Impacts on GDP
Simulation Results
✓ Positive Effects: Renewable and natural gas investments, energy efficiency
improvements
✓ Negative Effects: higher electricity price and carbon tax

12. 12
3. Impacts on Industries
◆ Numbers in bracket indicates the market share of an industry
◆ Low market share group (blue) v.s. High market share group (red)
✓ Relatively lower impact in former group, regarding the same carbon tax payment
✓ A industry with a large market share would suffer more output losses, due to the
close connection with other industries
Simulation Results
Market share of 𝑖
=
𝑜𝑢𝑡𝑝𝑢𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑖
𝑡𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 𝑣𝑎𝑙𝑢𝑒𝑠

13. 13
◆Carbon price is a powerful tool to achieve emission
reduction
◆However, a single policy to achieve the emission
target might results in large economic losses
◆ An industry with a large market share could
reduce output values by a large extent with
respect to carbon tax
Conclusions

14. 14
Thank You for Your Attentions

15. 15
Appendix
BAU
Electricity Carbon Emission Factor↓
Electricity Price ↑+Energy Efficiency Improvements
◆ Target for more renewables and less coal fired power plants
➢ Electricity Carbon Emission Factor↓➔big effects on carbon reduction
◆ Electricity Price ↑+Energy Efficiency Improvements➔Furthe reduce the emissions
◆ Still need the carbon tax to reach the target
Million Tonne
Targets